How long does payroll take to process?

The payroll process is not something that is standardized in every company. Whether it is an automated, manual, or outsourced process, it may take minutes or even weeks. It depends on the person performing the transaction and the processing time itself. The payroll process usually includes collecting data on employees’ salaries during the period worked, deducting taxes from that amount of money, and figuring out the commission on a transaction if it is an international contractor. Although the duration of the process influences the loyalty and reputation of the business, many people do not think about the duration and delays that may happen. 

How does the payroll processing work? 

Firstly, the accounting or finance department obtains the information on the employee. Personal information and remuneration agreements are needed in this step. In some cases, business owners may opt to outsource the whole payroll process to third-party services, so data collection is the concern of another accounting firm or a payroll company.

Secondly, after collecting the information about each employee, an accountant or an HR reviews the respective hours worked during the period given. The best is to have both specialists engaged in a payroll cycle. According to the established practices, the payments may be monthly, semi-monthly, biweekly, or weekly for long-term employees. Overworked hours, sick leaves, and other types of subtractions should be revised in this step. In contrast, the bonuses and commissions are taken into account too. 

Thirdly, tax deductions and social insurance contributions are being revised from the payroll. 

Fourthly, payrolls are issued in-house or outsourced. Professional bookkeepers take less time to process payrolls as a rule.

After the last step, the person in charge must apply the same information on payroll to local authorities.

Factors that affect the payroll time

• Mistakes in filling the data. Whether it is a misspelled name or a wrong date, no company is one hundred percent secured from it. Not that many companies have a completely automated payroll system, so the human factor happens. Statistically, manual processing takes longer time and this is definitely a thing to consider if you want to avoid postponement.
• Miscalculations. Tax legislation is being constantly changed and it could be problematic for some to determine precisely. Compliance with the tax regulation often takes a longer time and can cause postponement of payrolls, especially if you are working with a foreign workforce. 
• System outages. Maintaining a smooth working process could be a challenge, which is why glitches can take place in every company.
• The company size. The number of employees working in the organization certainly plays a role in payroll duration. As a rule, the payroll takes 1-2 days in a small company of up to 10 people and 2-4 days for medium-sized companies where up to 50 people are working. If the number of people exceeds these numbers, then, the payroll process takes around 5 days and more. One accountant usually does payroll for every 50 people.
• Transaction methods. Direct transfers to local bank accounts are the easiest and fastest way of dealing with payrolls. However, international employees who are based in foreign countries make this process more complicated as they do not owe local bank accounts. Then, issuing a SWIFT or Wise payment takes a longer time, which is up to several days or weeks. Alternatively, the usage of online payment platforms or global payroll providers shortens the time spent processing the payments.

How to make the payroll process more effective?

Some people hope that the more a company exists, the shorter the payroll process is. But, the opposite is usually true. Having years of operating, a company is usually becoming more conservative and less prone to modify the established system of accounting and executing payrolls. It leads to delays in payrolls, deterioration of relationships between superiors and subordinates, and voluntary dismissals. 

According to Deel.com, the average payroll time in the USA is 2-5 days on the biweekly system of payment. Simultaneously, companies spend around 21 days a year to estimate and fulfill the payroll. Most of the people who carrythis out find the process frustrating and it can eventually demotivate employees from fulfilling other tasks. If the process is still performed manually on spreadsheets, the figures are more disappointing. Hence, transferring the data is essential to make the payroll process more efficient. 

The next non-obvious practices to reduce the processing time are to have well-established working processes in a company and invest in supporting strong relationships in a team. In other words, if an accounting department has prompt communication with other departments, it is key for time optimization. To gain such tailored support on every level of communication, investment in time building is needed.

Outsourcing payrolls is a brilliant decision for those who value time. Horizons, Gusto Payroll, Rippling, ADP, and others are the leading software that streamlines payroll time. Secured personal information, enhanced compliance with tax reports, and minimized risks of financial mistakes are just a small range of tasks accomplished by these services. While the payroll process in-house may be long and tedious, the outsourced one takes 1-2 days to accomplish.

The consequences of a delayed payroll

Delayed payrolls can happen due to public holidays, software glitches, or financial hardship. No matter how and why it happens, the outcome may be fatal. 

• Financial distress to employees who live from paycheck to paycheck.
• Reputation risks result in high staff turnover, an increase in adverse company overviews, and recruitment problems.
• Tax penalties from 2% to 10%.
• Compromised productivity and the loss of job satisfaction and motivation.
• Lowered engagement.
• Cash flow issues.

Popular payroll methods. How long does it take?

• Direct Deposit. This is the most convenient way of transferring payrolls. The process starts with the usage of a bank application or software or going straight to the bank institution. Once the money is received by the bank, they are sent to ACH (Automated Clearing House) and finally, they are transferred to the employee’s bank account. If it is a transaction between the same bank names, then, money is available to the employee instantly or during 1 day. However, the deposit between different bank institutions may go through longer and the bank procedure takes 1 to 3 days. International payrolls, instead, add complexity to this mission since the processing time is extended. It happens due to the necessity to comply with foreign financial laws, currency rate fluctuations, bank charges for external transactions, and tax claims. There are not many options left to expedite the process of direct deposit.
• Paper checks. Signing paper checks is still a popular method for conducting payrolls in the USA. To a lesser extent, people still use it in France and Canada. The popularity of these practices is explained by the strict banking system in these countries, the complexity of transferring funds electronically, and the complicated regulation of online transactions for some people. Statistically, signing and handling paper checks takes 2 days. But if paper checks are sent by post, one has to do it at least 5 days in advance. 
• Prepaid debit cards. This method is commonly used for paying for short-term work and for employees who do not possess bank accounts. On the one hand, there are plenty of companies who sell prepaid cards and it facilitates the process of handling payroll. On the other hand, it is not a reputable solution in the long run. Issuing prepaid cards can be costly as well, especially if a company has a large number of employees. There are other significant drawbacks too, namely stolen prepaid cards or the inability to save up money on this type of card. Nevertheless, It takes 1-2 days to proceed with the payroll by pay cards. 
• Cryptocurrency. The innovative way of transferring funds to employees is relatively popular now. The best and the most appropriate cryptocurrencies to conduct a payroll are Bitcoin, Ethereum, USDC, USDT, and others. The deposit may be done immediately or within 1 day. It does not take long, but employers must be aware of the risks and legality of this payroll procedure. 
• EasyStaff Payroll and other similar services. On average, processing a payroll for a domestic employee may take 0-3 days and around 2-7 days for a foreign one. In terms of time, it takes longer, but, this is the most comprehensive and efficient process in the long run. The whole procedure can be automated and error-free for the employer. A monthly software subscription may cost the same amount of money as the direct deposit fee to a foreign bank here.

Conclusion

In conclusion, handling accurate payroll on time is a fundamental task for each business. The average time for a payroll to process is 2-5 days approximately. The best numbers are demonstrated by crypto transactions and direct deposits. Neglecting this business process and causing postpones in signing paychecks results in penalties, reputation risks, and boosted turnover rates. On the other hand, setting deadlines, maintaining well-functioning working processes, implementing the most suitable payroll method, and conducting periodic audits of the payroll processes can ultimately speed up the payroll cycle.